Dry ATMs: Govt, RBI caught off guard

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“The mouth obeys poorly when the heart murmurs.

– Voltaire


Cash availability is slowly improving in Automated Teller Machines (ATMs) across the country as banks are rushing currency notes to states where they were in short supply. More bills are also being printed to quickly restore normalcy. SBI sources said that the situation is improving by every passing day and normalcy is likely to return across the country shortly. SBI has the largest network in India consisting of 22,584 branches 59,000 ATMs. States, including Gujarat, Uttar Pradesh, Madhya Pradesh, Bihar, Andhra Pradesh, Manipur, Arunachal Pradesh and Telangana, have reported shortage of cash at ATMs. Stories of people running from one ATM to another in search of money are doing the rounds. In fact, the empty ATM and teller counters have caught the Reserve Bank of India (RBI) and the government completely off guard. With reports of ATMs running dry in many parts of the country, fears of cash shortage witnessed in the post-demonetisation period have come back. Both the government and RBI have stepped in to allay such fears. A former RBI official has made a point that the currency in circulation should have been much more had demonetisation not taken place. The government has partially acknowledged this reasoning by promising to supply adequate currency notes in the coming days and months.

This sudden cash crunch has come nearly 18 months after the Central government decided to scrap currency notes of Rs 500 and Rs 1,000, which accounted for over 86% of the currency in circulation at the time. With the public searching for a reason for the cash crunch, the government attributed it to an “unusual spurt in currency demand”. But there is no official explanation for this spurt. Even as the government and the RBI asserted that there is no currency shortage in the country, SBI Research has pegged the cash shortfall in the system at a whopping Rs 70,000 crore, which is a third of the monthly withdrawals at ATMs. While finance minister Arun Jaitley said there was a “sudden and unusual increase” in demand in some parts of the country, the opposition lost no time in latching on to the issue with Congress chief Rahul Gandhi linking the problem to the Nirav Modi fraud and demonetisation.

The reasons for the prevailing situation are still unclear. These are some of the theories doing the rounds: One, cash is being routed to Karnataka, where state elections are scheduled to take place on 12 May. Two, people are increasing their cash hoards because of recent frauds at banks such as the one at Punjab National Bank and fears over the Financial Resolution and Deposit Insurance Bill, which has a so-called bail-in clause. There is no denying that bank deposits have witnessed a 54-year low growth in the financial year ending 2017-18. That left a gaping hole in the banking system that neither the government nor the RBI could anticipate. The situation may calm down soon if it is just a case of under preparedness and poor logistics on the part of the RBI. But the government cannot rest. It has to act otherwise similar cash crunch, which is attributed as the consequences of the overnight demonetisation of November 8-9, 2016, would resurface time and again to haunt people.

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